Budget 2023: Pension Tax Changes

Annual Allowance 

The Annual Allowance is the maximum amount of pensions savings an individual can make each year without incurring a tax charge.  

• From April 2023 the Annual Allowance will increase from £40,000 to £60,000 

Tapered Annual Allowance  

Although most individuals are entitled to a full annual allowance, the allowance is restricted for individuals with income above certain levels.  

• From April 2023 the income level for the tapered AA to apply will increase from £240,000 to £260,000. The minimum Tapered Annual Allowance also increases from £4,000 to £10,000. 

Money Purchase Annual Allowance 

The Money Purchase Annual Allowance (MPAA) can potentially apply where an individual starts to take money from a defined contribution pension pot. Where the MPAA applies, the amount that can be contributed into your pension might reduce.  

• From April 2023 the MPAA increases from £4,000 to £10,000 

Lifetime Allowance  

The Lifetime Allowance (LTA) is the maximum amount of tax relievable pension savings an individual can benefit from over the course of their lifetime. Individuals may contribute to their pension over these limits, but they will be subject to a tax charge on the amount above the allowance.  

• In a hugely significant announcement, the Chancellor announced the abolition of the LTA from April 2023.  

However, further detail about this measure and the Government's plan to put in place restrictions on the tax-free lump sum an individual may take, have yet to be released. Currently, when an individual becomes entitled to their pension benefits, they can often make use of the pension commencement lump sum (PCLS), which is currently 25% of an individual's available LTA. The Government will introduce a PCLS upper monetary cap of £268,275 (25 % of the current LTA). If you have LTA protection in place, you may be able to take a higher PCLS. 

Find out more about the Spring Budget

To find out what other tax changes The Chancellor announced in the Spring Budget, please click here.

Last updated: 16th March 2023